Markets

Ziopharm strategy tries to manage risk

Ziopharm Oncology is trying to fight its way back, and one investor is using options to manage the trade.

Our tracking systems detected the sale of 2,420 July 5 calls for $0.70 yesterday. An equal number of January 5 calls were bought at the same time for $0.20, but volume was below open interest. This suggests that an existing short position in January was rolled forward by six months.

The investor probably owns shares in the cancer-drug developer and is using the options as part of a covered call trade. The strategy uses income from selling calls to offset the price of the stock, which reduces the downside risk. It also means that the position stands to make less money if the shares see a major rally. (See our Education section)

ZIOP dropped 4 percent to $4.32 yesterday and has been drifting lower since May. Implied volatility has also been rising in the name. That increases the appeal of rolling to the longer-dated calls because they have a higher vega and are therefore more sensitive to implied volatility.

Almost 5,300 contracts traded in the name yesterday, 10 times greater than average, according to optionMONSTER data.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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